Trying to decide if you should refinance your Australia home loan? You need to consider when is the best time to refinance and the best way to go about it.
There are many variables that you should take into consideration before deciding if it is the right time to ask for new loan terms. Let's take a closer look at how to refinance a home loan and when to refinance home loan to help you save the most money.
How to Refinance a Home Loan
The first thing that you may want to do before you start the process of applying for a new loan is to use a mortgage refinance loan calculator. It can help you get a better idea as to exactly how much you can save if you were to get a lower interest rate or were to reduce the term of your loan. It can also help you get a better idea as to how much you may owe in stamp taxes.
If you are still set on refinancing your mortgage, you have to choose between an internal and an external refinance. An internal refinance means that you get a new loan with the same lender. An external loan means that you get a new loan from a new lender.
You will also need to decide if you want to do a full refinance or a partial refinance. Partial refinances may be worthwhile for those who own multiple properties or are looking for short-term flexibility with a single home loan.
When To Refinance Home Loan
Using a mortgage refinance loan calculator may help you decide when the best time to refinance may be. Ideally, you will wait until interest rates are lower than what you are currently paying on your loan. However, this is only one factor that you should consider when choosing to redo the terms of your mortgage.
You will also need to think about how many more payments that you have on your current loan as well as whether the interest rate is fixed or variable. While interest rate hikes could increase your mortgage payment unexpectedly, the interest rate is generally higher for a loan with a fixed rate compared to one with a variable rate. Therefore, switching to a loan with a fixed rate won't necessarily bring any short-term financial relief.
Whatever you do, do not get emotional about your decision to refinance a mortgage. Your lender is going to use hard numbers and other objective criteria to determine how much you should pay for the right to finance your home purchase. Therefore, you shouldn't feel bad about asking for better terms or switching lenders if it is in your best interest to do so.
Refinance Offers And Rates
Lenders may try to win the business of those with good credit by advertising low interest loan rates and other attractive offers. However, you can't look at the interest rate alone when determining whether or not a particular loan is going to meet your needs and budget over the course of the new loan.
Ideally, you won't refinance with a longer loan term. This is because you will pay more in interest even if your monthly payment drops by hundreds of dollars per month. You will also need to factor in closing costs or other fees that a lender may charge, which could significantly erode or even offset a lower monthly payment.
If you choose to go with an outside lender, you may pay an early exit fee to get out of your loan. Therefore, it is in your best interest to try negotiate with your current lender first to see if there is any way to waive that fee or otherwise sweeten the terms of your current loan so that you don't have to go elsewhere. If you want to refinance an existing mortgage held with another lender, an economy home loan is an alternative lending option designed to save thousands of dollars in interest and cut years off your repayment time.
Assuming that you have accounted for closing costs and other fees, it may be possible to save hundreds of dollars or more per month by refinancing your current mortgage. That money could help you establish an emergency fund or even pay off your home loan even faster. To determine whether it is a good idea to refinance right now, don't hesitate to reach out to your lender or use an online calculator to better educate yourself about the ramifications of your decision.